The TSX index has been an intriguing mix of sectors since its inception, largely reflecting the Canadian economy with its spread of natural resources and big names in business and infrastructure. The following transport and defence stock has long been a popular Canadian investment and is something of an institution in its own right. It’s also been in the headlines a fair bit in recent weeks, with pundits piling on from either side of the bull-bear divide to throw in their two cents.
With plenty of data to trawl through, let’s see whether this stock flies or deserves to get left on the runway.
A one-year past earnings growth of 95.9% should have fans of thoroughbred stocks suitably impressed, with a five-year average past earnings contraction by 5.4%. Forget about looking to PEGs in times of uncertainty, though, because Bombardier’s is characteristically inscrutable. Instead, consider its negative shareholder equity and undervaluation if you want some outside-the-box data to base investment decisions on.
It’s been hard to tell in recent months whether this stock is a TSX index hero or a great big liability, with no two stock market commentators proffering quite the same analysis. Sure, it looks like it might be good value in comparison with its future cash flow value, though with a negative P/E ratio and a negative P/B to match, it’s hard to tell (though let’s just say that P/E is very negative). While most folk seem to feel that this stock is perpetually on hold, there may be some argument for it in terms of growth and value.
So much for value, but what about momentum?
You won’t get dividends with this stock, so it’s a capital gains pick only; with that in mind, quality is therefore not necessarily the be-all and end-all. That’s good to know, because an ambiguous ROE is something of a cause for concern. However, an acceptable EPS (nudging half a dollar) and a bold 47.7% expected annual growth in earnings do make this a stock worth holding in terms of pedigree. That latter percentage definitely suggests that this stock is a buy for fans of high growth.
In terms of momentum, there are much more exciting stocks on the TSX index, though Bombardier has shed 7.34% in the last five days, has a moderately volatile beta of 1.55, and its share price is discounted by over 50% compared to its future cash flow value. All of this makes for an interesting “oscillating” stock and could put it on the radar for investors who like to trade on fast-changing share price fluctuations.
The bottom line
By looking at value, quality, and momentum, it’s possible to convert the above data into a fairly reliable hold, buy, or sell signal. Each of the three factors can be broken down and each sub-factor weighted to give an approximate score and an overall percentage.
Scanning the above TSX index-relative scoring for Bombardier, I would give this stock about 40%, which roughly equates to a “hold” signal, with most of its strength coming from quality and momentum attributes, and very little from the value end of things, despite its apparent undervaluation.